Correlation may not be causation. Nevertheless, there has often been a high correlation between the movement of the Consumer Comfort Index and the stock market (S&P 500).
Despite Consumer Comfort plummeting more than 50%, the S&P 500 has rallied back to within 16% of all-time record highs. That’s quite the disconnect.
There’s a similar decoupling between historical valuations and the price that investment participants are willing to pay today. The S&P 500 at 2850 is currently trading at a Forward P/E of 20.3. If it were trading at its average P/E during heightened uncertainty (13.6), the S&P 500 would be around 33% lower at 1910.
All hail the Federal Reserve’s stock bubble!
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